1:1:1 Philanthropic Model and Non-Cash Revenue Streams for Colorado Nonprofits

Below is part of a key long-term recommendation for local nonprofit, Saving Moses, to capture the Millennial donor demographic.

Targeting Nonprofit Millennial Donors with NON-CASH REVENUE STREAMS

In a recent Stanford Social Innovation Review article, both Andy Posner of the Capital Good Fund and Mollie West of Harvard Business School divulged the astonishing fact that for the last nearly 50 years, 46,000 for-profit businesses have passed the $50 million annual revenue mark, while only 114 nonprofits have crossed that very same threshold (Posner, 2014). With a staggering difference of over 400 times, maybe Dan Pollatta was right in his celebrated TED Talk when he pronounced that “the way we think about charity is dead wrong” (Posner, 2014). As Posner and West astutely go on to say, “The most effective and economical way to solve big problems is not 10,000 organizations serving 100 people per year, but rather 100 operationally and programmatically excellent organizations each serving 10,000” (Posner, 2014).

Is your nonprofit striving to be one of 10,000 organizations serving 100 people per year, or is it an unparalleled, standout organization that could potentially reach 10,000 at-risk individuals, etc. per year? Right now, there are well over one million operational nonprofits with nearly $2 trillion in revenue and $4 trillion in assets eligible for tax-deductible contributions, all of which are fighting for every dollar of donations they can get their hands on. It has become abundantly clear within this crowded environment that the only way to maintain and grow capital moving forward is to sustainably tap into the millennial generation donor pool (Saunders, 2015). For good reason, winning this target demographic is likely to make or break the nonprofits of today and tomorrow. This next generation of philanthropists and charitable givers belong to the wealthiest generation in history, and are not only the most financially savvy and powerful, but interestingly, are the most altruistic and willing to give away their money (Arrillaga-Andreessen, 2015).

Perhaps, even more importantly, however, the millennial generation is second to none in entrepreneurial spirit, where massive concentrations of wealth are being created seemingly overnight at much younger ages, versus the old model of accumulating wealth steadily over an entire lifetime. For the first time ever recorded, twelve people/couples who were under the age of fifty made the list of top philanthropists last year, each giving away separately nearly $10 billion (Vara, 2015). Clearly, nonprofits all over the world are positioning themselves in a way to try and get a piece of this massive wealth and altruistic pie. Nonprofits are thinking about how to attract millennials to exclusively donate their cash and invest in their missions, but what if this was the long way (or even wrong way) to sustainably secure growth capital in today’s crowded environment?

As Executive Director of the Capital Good Fund, Andy Posner notes that while his nonprofit, which is dedicated to tackling poverty in the U.S., has been successful with its traditional fundraising efforts over the last five years, they’re nowhere near being able to help 10,000 families per year. While proud of their tremendous growth and ability to serve 3,500 families annually, Posner adds, “We’ve been at the grant-writing and donor-outreach games long enough to recognize that only a fundraising paradigm shift will enable us to become a national organization” (Posner, 2014).

With respect to targeting the millennial demographic, one way to address this “fundraising paradigm shift” could be to think less about attracting donors to “invest” in your nonprofit, and rather refocus the strategic effort in a way that your nonprofit “invests” in the millennials themselves. Beneath the surface of the traditional grant-writing and donor-outreach fundraising methods are amazing and incredibly dynamic sources of non-cash revenue streams in the form of public and private equity. While equity donations are not necessarily new to the nonprofit world, when properly mixed with the current entrepreneurial millennial generation and accompanying trends, one can begin to see the sheer magnitude of the paradigm shift that is unfolding within the philanthropic marketplace.

Earlier this year, Shake Shack, which grew from a single hot-dog stand in New York City into a business with $85 million in sales last year, had its initial public offering (IPO) on Wall Street, valuing the company at nearly $2 billion. While an amazing story in of itself, one of the most interesting aspects of Shake Shack’s incredible success is that a conventional nonprofit, Share Our Strength, became one of the biggest beneficiaries of the company’s IPO. As it turns out, last year, one of the nonprofit’s biggest supporters (who has decided to remain anonymous) donated $1 million in privately held stock in Union Square Hospitality Group (the parent company of Shake Shack) directly to Share Our Strength (Shore, 2015).

Bill Shore, who is the Founder and CEO of Share Our Strength, remarked that “while it’s not clear yet what the ultimate valuation will be of the Union Square stock we hold…it looks like even a small equity stake in a growing company will enable us do more to curb childhood hunger than some other forms of nonprofit revenue generation” (Shore, 2015). Again, while equity donations and holdings are not entirely a new concept to the world of philanthropy, Shore points out that this is “still virgin territory for investors and nonprofits alike” (Shore, 2015). He goes on to say that “while we would never put contributions from donors at risk in anything as speculative as an IPO,” he is hopeful that “investors and nonprofits will come to see the potential in such relationships and a body of best practices will build to guide and inform future efforts” (Shore, 2015).

This is one of the paradigm shifts alluded to above, and it is happening right now. While the Shake Shack story is one event and seems like a nice, feel-good story, there is actually an entire movement devoted to this very paradigm shift, ready to bubble to the surface and wash away the outdated models of traditional grant-writing and donor-outreach. At the forefront of this movement is impassioned philanthropist and CEO of Salesforce, Marc Benioff, who is pioneering the 1-1-1 model of “integrated corporate philanthropy,” where the companies of today and tomorrow are encouraged to donate a 1% equity stake to a nonprofit of their choice, in addition to both 1% of their revenue and time, respectively (Shore, 2015).

While a hot dog/hamburger company may not fit with the strategic focus, vision, and values of your nonprofit, there are many companies currently being created and run by millennials that are signing onto this 1-1-1 pledge (Pledge1Percent) that could align nicely with your nonprofit mission. In fact, there is an organization called the Entrepreneurs Foundation that has its own Colorado chapter, which is made up entirely of a “network of Colorado entrepreneurs whose companies share a common commitment to pledge a portion of founding equity or a portion of annual profits to the community” (EFCO, 2015). Since 2008, EFCO has donated both equity and revenue valued at more than $2 million to Front Range area nonprofits (EFCO, 2015).

While pure altruism is certainly playing its part in this recent corporate behavior, there are certainly many other benefits that come along with this new paradigm of philanthropy, for both the donor and nonprofit alike. Of course, as demonstrated with the Shake Shack example, “invested” nonprofits can align themselves with the power of market forces and participate in leveraged capital growth, whereas traditional “capital-constrained nonprofits are rarely able to participate” and are historically “relegated instead to being on the outside looking in” (Shore, 2015). For the equity donor, there is also tremendous upside. Companies naturally increase their goodwill, and in-turn, participate in the growing world of for-profits with a purpose, where the millennial entrepreneurs of today are “working hard to create businesses that make societal impact with the work they do” (Zitron, 2015). Not only are “the lines between purely for-profit and purely non-profit efforts [continuing] to blur,” as noted by Maggie Nielson, CEO of Global Philanthropy Group (GPG), but even operationally, studies have shown that when employees feel like they’re making an impact and working towards a good cause, productivity levels shoot up by as much as 30% (Forbes, 2015; Zitron, 2015).

Outside of the companies themselves, individual philanthropists looking to donate equity positions can benefit from tremendous tax advantages, particularly if leveraging the recent rise of Donor-Advised Funds (DAF), which NPT Vice President Andrew Hastings notes “are the fastest-growing charitable vehicle out there” (Ebeling, 2013). As a low cost alternative to traditional private foundations, DAF’s are charitable accounts typically managed by financial services companies like Charles Schwab or Fidelity that allow for easy transfer of equity, cash, and other assets to 501(c)(3) nonprofits in good standing with the IRS. Because of the tremendous tax benefits, flexibility in structure and timing, and option of anonymity, DAF’s have surged in popularity in recent years, particularly amongst wealthy millennials (Vara, 2015). According to Charles Schwab, “In 2012, assets under management grew by $7.21 billion, an 18.9% increase from the previous year” (Spiegelman, 2014). From an equity donation standpoint specifically, DAF’s offer the donor the ability to deduct the full mark-to-market value of the respective stock as a charitable donation (without having to pay taxes on any appreciation), versus traditional foundation restrictions of deducting the cost basis only (Ebeling, 2013).

While these financial benefits are clearly important, the true power of this paradigm shift may actually truly be unlocked through the unique publicity and marketing possibilities that would be created and amplified throughout both the business and nonprofit worlds. If your nonprofit can effectively generate another stream of revenue through its “investment(s)” in millennial entrepreneurialism, employees, volunteers, and supporters alike will revel in the magnified publicity and marketing vitality that comes from thinking and operating strategically outside of the box. By integrating itself more into the business community and leveraging innovative non-cash market strategies, your nonprofit can separate itself from the pack through unique branding and growth tools. Perhaps, your nonprofit could even launch complimentary marketing initiatives that would again tap into the traditional millennial donor pool. As a market-aligned nonprofit, your nonprofit could potentially launch its own “IPO” to save lives. While admittedly a bit gimmicky, Andy Posner’s Capital Good Fund launched its own IPO to end poverty, where each $25 donation equaled one “social innovation share” that was given back to the donor. While the shares are obviously just fancy terms for donations, Posner notes that “from a behavioral psychology perspective, the IPO taps into the human need for reciprocity” (Posner, 2014). Millennials love participating when something is returned for their efforts, whether “it’s a certificate, title of shareholder, [or] even the ability to vote to elect a board member” (Posner, 2014).

For your nonprofit, non-cash revenue streams in the forms of public and private stock are a long-term strategic play, but one that can be focused on immediately. In the very short-term, your nonprofit can be better positioned to participate in the rise of impact investing and DAF’s once it’s on the radar screens of financial services companies like Vanguard, Fidelity, or Schwab, where at the very least, financial representatives can help you get set up with appropriate brokerage accounts to handle accompanying equity positions. Opening up a new revenue stream through DAF participation has the potential to open many doors for your nonprofit, and can alone be a game-changer financially. For example, Glen Tullman, managing partner of 7wire Ventures, used a DAF at Fidelity Charitable in 2009 to funnel nearly $5 million of stock in Allscripts Healthcare Solutions to the JDRF (previously known as the Juvenile Diabetes Research Foundations), as well as additional amounts to other traditional nonprofit charities (Ebeling, 2013). For more information on getting set up, Charles Schwab is a great place to start:  http://www.schwabcharitable.org/public/charitable/resources/charitable_organizations

If your nonprofit truly wants to stand out, though, and potentially reach that mark of saving 10,000 individuals, etc. annually, the long-term vision and focus really must be in tapping into the 1-1-1 model, and aligning itself as soon as possible with the millennial entrepreneurs of Colorado. There is a wave of companies becoming members of the Entrepreneurs Foundation in Colorado that are ready to donate equity in their companies to nonprofits in the Front Range area, but may not know about your nonprofit and its incredible mission. Member companies are currently listed here:  http://efcolorado.org/

Another recommendation is to reach out to smaller, private businesses in the Denver/Boulder area that could potentially align with the mission and vision of your nonprofit, and communicate to them the future value of the 1-1-1 pledge. Many local businesses could be great fits, and may be willing to participate in this breakthrough paradigm shift. The bottom-line is that this paradigm shift is happening and is bound to become a core tenet in the next generation of best-practices within both the business and philanthropic worlds. Become a part of the movement, or ultimately risk being consistently starved for meaningful growth capital.

References:

Arrillaga-Andreessen, Laura. (2015). Disruption for Good. Stanford Social Innovation Review.

Ebeling, Ashlea. (2013). Generous Tax Tricks. Forbes.

Forbes, Miguel. (2015). All There Is To Learn About Global Philanthropy. Forbes.

The Entrepreneurs Foundation of Colorado (EFCO). 2015. http://efcolorado.org/

Saunders, Laura. (2015). How to Vet a Charity. The Wall Street Journal: Weekend Investor. Saturday/Sunday, May 9-10, 2015.

Schwab Charitable. (2015)  http://www.schwabcharitable.org/public/charitable/resources/charitable_organizations

Shore, Bill. (2015). Shake Shack IPO Is Charity’s Gain. The Chronicle of Philanthropy.

Spiegelman, Rande. (2014). Donor-Advised Funds: Making Charitable Giving Strategic, Easy, Tax Smart. Charles Schwab.

Pledge1Percent. (2015). http://www.pledge1percent.org/

Posner, A., West, M. (2014). The New Nonprofit IPO. Stanford Social Innovation Review.

Vara, Vauhini. (2015). Peer-Pressure Philanthropy. The New Yorker.

Zitron, Ed. (2015). Why Businesses That Are Purpose-Driven Come Out on Top. Inc.: inc.com

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